CBNNews.com - JERUSALEM, Israel - The Israeli government has allegedly admitted to allowing hundred of millions of dollars to be transferred to Hamas inside the Gaza Strip, according to Shurat Hadin, a watchdog organization.

The organization exposed the dealings on Thursday as it announced its intention to bring a law suit against the government if the transfer of funds does not cease.

Organization head Nitzana Darshan-Leitner cited a letter she received from Israeli Prime Minister Ehud Olmert's legal adviser stating, "The transfer of funds to the Palestinian Authority in the Gaza Strip takes place with the knowledge of the government of Israel for diplomatic reasons."

Mark Regev, a spokesman for the Prime Minister's Office, told The Jerusalem Post that the funds mentioned in the legal adviser's letter refer to money from customs taxes belonging to the PA, in accordance with the Paris Agreement of 1994.

"Not a single penny of this money goes to the Hamas," Regev said. He added that the money is used to pay PA employees working in the Gaza Strip.

1994 Agreement

According to the 1994 agreement, Israel collects the customs tax at ports for goods imported to Judea and Samaria (the West Bank) and then delivers the money to the Palestinian Authority in Ramallah.

However, Shurat Hadin attorney Ro'i Kochavi said that the organization's allegations did not involve these funds but pointed to other transfers by the Bank of Israel and the Postal Authority instead. According to Shurat Hadin, the money is transferred in armored cars from banks in Judea and Samaria.

Some of the money is used to place deteriorated bills that can no longer be circulated. However, some of the money is also used for laundering that Hamas smuggles into Gaza from Iran via Egypt.

Kochavi said that the Iranian money is then switched with the shekels arriving to the Gaza-Israel border in the armored cars. The Iranian money is then brought to banks inside the West Bank, where it is sold to the Bank of Israel in return for shekels. He added that Hamas is using the shekels to pay for their armed forces.

Transferring Money as Gov't. Requires

While the Bank of Israel, the Postal Bank Company, and the Postal Authority insist that they are transferring money as required by the Israeli government, they do so with the knowledge of the proper authorities.

In its letter to the Prime Minister's Office, Shurat Hadin warned that the government was knowingly facilitating Hamas rule in Gaza. Darshan-Leitner argued that without the shekels, Hamas would be bankrupt and unable to rule. Darshan-Leitner added that the Israeli government is violating the Terror-Funding Act of 2005.

Darshan-Leitner declared she was considering petitioning the High Court of Justice, charging that the government was violating the Prohibition of Terrorist Funding Law and the Prohibition against Money Laundering Law.